Where to now for real estate funds?

Funds that invest in real estate both locally and globally are, on average returns, among the top three performers over both the three- and one-year periods to the end of March.

Local real estate funds were also the best performing sub-category over five years to the end of March.

Keillen Ndlovu, the head of the listed property franchise at Stanlib, says the property market is being driven by the strong local bond market. Listed property performs in line with the bond market because of its income-generating ability.

Ndlovu says retail and industrial properties, which make up about 70 percent of the listed property sector, continue to do well.

For the year ahead, Stanlib is expecting returns from listed property of between four to five percent and 11 to 12 percent, Ndlovu says.

The risks are that bond yields could increase and economic growth and consumer spending could be lower than expected, he says.

Ndlovu says over the next five years Stanlib believes local listed property can deliver returns of 10 percent a year, on average.

Commenting on the global property market, Ndlovu says despite a good run after the 2007/8 financial crisis, global listed property prices are still 26 percent below the peaks achieved in early 2007.

In the year to date, global listed property has delivered a return of nine percent in US dollars (USD) and 19 percent in rands. Last year, it delivered about 25 percent in USD and about 32 percent in rands.

Ndlovu is upbeat about global property prospects because:

* There is a limited supply of property, especially in prime areas;

* The rental market has improved across all sectors,

* Vacancies are declining;

* Earnings from property companies have improved.

* Physical property valuations have improved and there is room for these to increase further; and

* Economic growth has also improved, which should increase the demand for property.

Sector graphs March 31, 2013


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